WHO NEEDS BANKS AS THEY ARE NOW?

Piere FerrandCHICAGO TRIBUNE

As usual, we are looking for scapegoats rather than remedies. Congress, in response to popular demand, has been appropriating hundreds of millions of dollars for the prosecution of crooks who looted savings and loans. We have also been told that the real guilty parties are the politicians who received campaign contributions from the S&Ls.

Fraud was a factor, but a relatively minor one. A recent study estimates that 3 percent of S&L losses were due to it. Of the fraud losses, less than 2 percent are likely to be recovered through diligent prosecution. Whether such recoveries will even pay for the legal expenses involved remains to be seen.

The amount of campaign contributions actually involved is puny in terms of the S&L bailout bill. According to Common Cause, the political donations have been some $11 million over a decade, a small fraction of election costs for the period. Politicians had little motivation to refuse these funds, even from S&Ls known to have problems. It was widely assumed that since the industry was providing essential services and was still highly regulated, nothing serious would happen to it. Most depositors were federally insured, and therefore not at risk.

In the Reagan era of prosperity, sick S&Ls would become profitable again. Ever-increasing real estate values would rescue a number of S&Ls from some of their worst mistakes. And the Reagan administration was perfectly happy to sweep the S&L issue under the proverbial rug.

The figures show that the astronomical costs of the S&L bailout, which are still escalating, are primarily attributable to the continuing failure to address the fact that the S&Ls, as an industry, have not been structurally sound since deregulation. Many S&Ls were allowed to survive for a number of years though they had lost more than their capital before 1983. The regulators allowed them to count fictitious ''good will'' as capital funds. Since the losses which had eroded their capital were not repaid, and losses continued, related interest charges and expenses continued to accumulate.

Also, sick thrifts, to raise money, were forced to pay high interest for deposits. This was often done by order of the regulators, since these S&Ls had to get the money or go out of business with the government picking up the bill then and there. It was a delaying tactic. Despite the fuss about it, the number of S&Ls who used high-cost deposits to fund extravagant deals or even lavish expense accounts is small.

Real estate losses are another major factor contributing to the taxpayers` S&L bill. So are government subsidies, direct or indirect, for mergers and takeover of ailing thrifts, and the administration`s insistence that the bulk of S&L bailout costs be financed on an off-budget basis, through the issue of long-term bonds. This decision alone will add hundreds of billions to the interest expense over the years.

The safety of our funds in S&Ls and in banks is currently guaranteed by the U.S. government. On the basis of their recent performance, we would have limited reason to trust either set of institutions without it. Indeed, there is ample reason to believe that our commercial banking system is in jeopardy, and is mainly propped up by deposit insurance and the well-founded belief that the government will not allow major banks to fail.

The banking system did work in the past because most professional bankers were aware that they were operating a highly leveraged, low-margin business with other people`s money and could not afford to take chances. The ''other people'' were depositors, not investors or entrepreneurs, and were entitled to the safety of their principal, especially when they did not earn interest on their money. ''Risk'' was a four letter word.

Since the great bulk of deposits and funds borrowed by banks is now interest-bearing, bankers have generally found that safe loans are no longer profitable and few profitable loans are safe. As a result, many bankers have tried to become financiers, a different profession with a different ethic. It is properly the business of financiers to take risks, provided they use their own money or that of investors fully aware of the risk. They should be forbidden to use the funds of ordinary depositors whose prime objective is safety.

There are a number of ways in which the needs of the general public could be met by modifying banking structures. Depositor funds could, for instance, be required to be fully collateralizd by special government bonds redeemable at any time for the principal amount plus accumulated interest. Deposit insurance (and the banks` liquidity reserves) would then be unnecessary. More widespread use of mortgage bonds to finance mortgage loans could take care of the financing of housing, as it does in other countries.

The average consumer has no need today for elaborate banking structures. Most of the facilities he uses (including credit cards) have been automated. Except for ''high net worth individuals,'' personal banking has become very impersonal indeed.

There is no longer much reason why financial services for business should be handled by a bank, or be restricted to a state or a city. The economic environment has become global in scale. As long as the depositor is adequately protected, and excesses in consumer finance are kept in check by a modicum of supervision and control, the balance of the financial services industry would require only a kind of super-SEC as a regulatory body.

One thing is certain. A network of financial services which needs elaborate and meticulous regulation and supervision, federal insurance, and bailouts to survive is not likely to be solid. Also, the system has visibly started to unravel as a result of rapid change. It may be objected that it has survived a good many years. However, so has the Leaning Tower of Pisa, though few architects would recommend it as a model to be safely followed today.